In recent discussions surrounding the evolution of the stock market, the advent of artificial intelligence (AI) has emerged as a pivotal force, with significant implications for various sectors. As noted by financial analysts, AI is often heralded as the “defining investment theme of our era.” Nvidia (NVDA) has prominently positioned itself as the foremost benefactor of this trend, recently becoming the world’s first company to achieve a market capitalization of $4 trillion, primarily due to its role in facilitating AI technology. However, the beneficiaries of this transformation extend beyond tech giants, including companies like Vertiv (VRT), which provides essential infrastructure for AI data centers.
Since the introduction of ChatGPT nearly three years ago, traditional growth stocks have largely dominated the market landscape, with Morningstar’s broad U.S. growth index greatly outperforming its value counterpart. Yet, there have been intervals where value stocks held their ground, especially during market pullbacks seen in late 2024 and the early months of 2025. As enthusiasm for AI began to swell again, however, growth stocks quickly re-established their lead.
The question now arises: will value stocks ever make a sustained resurgence? The dominance of growth stocks within the U.S. market has been a prevailing narrative for over a decade, predating the recent AI craze. Past instances of value stock rebounds in years like 2016 and 2022 appear, in hindsight, as temporary anomalies. Thus, many value investors may feel disheartened or ready to abandon hope.
Yet, market dynamics are inherently unpredictable. Historically, leading sectors and investment styles are rarely the same from one era to the next. Notable shifts often only become apparent in retrospect, making it challenging to pinpoint catalysts for change before they unfold. This uncertainty was underscored by a recent prediction from Vanguard’s chief economist, Joe Davis, who articulated his belief that AI will likely spur economic growth and lead to an unexpected resurgence in value stocks.
Davis suggested that those most bullish on AI may want to divert their investments away from the dominant tech sphere, including the major players referred to as the “Magnificent Seven,” which includes Apple, Amazon, and Microsoft, to name a few. Instead, he highlights that transformative technology often has broader implications, potentially benefiting a wealth of companies outside the tech sector and leading to increased productivity, higher earnings, and innovative product developments.
During a recent interview, Davis detailed his perspective further, articulating that the current technological landscape indicates we may be in the throes of a transformative cycle akin to past technological innovations. He noted that historical examples, such as the rise of electricity and the personal computer, show two distinct phases. The first phase often involves significant investment and production of new technologies, which can lead to perceived bubbles. The second phase emerges when these technologies start driving better earnings and new applications across various sectors.
Davis suggested that if AI indeed stands as a transformative force comparable to the personal computer, there would likely be vast opportunities arising in sectors beyond the dominant tech firms. He provided historical context, citing that companies known today for their profitability, such as Ford and General Motors, were made possible due to the advent of electricity, which enabled industrial advancements that propelled their success.
The core implication of Davis’s insights is that if AI is poised to fundamentally reshape economic landscapes as some theorize, we might see significant valuation changes across the board, particularly among value stocks. He argues that this transformation could gradually shift investment attention away from high-multiple tech stocks toward undervalued sectors poised for growth.
As this dialogue around AI and the future of investing continues, the shifting tides of market engagement suggest that stakeholders should remain vigilant, as the next wave of investment opportunities could arise from the surprising corners of the market—beyond the Silicon Valley tech giants.
